Original | Odaily Planet Daily

Author | Husband How

ETH, which has been silent throughout the bull market, suddenly regained vitality in the early hours of Tuesday, with prices rising from 3110 USDT to a peak of 3841 USDT, a daily increase of more than 20%. This directly led to a market-wide pump, with altcoins related to the ETH ecosystem rising by more than 10%. The main reason for this impressive rise is that the US Ethereum spot ETF, which was previously not favored, is now expected to be approved.

However, it is still unclear whether the US Ethereum Spot ETF will be finally approved, and although Bloomberg ETF analysts and related institutions continue to express positive views, many encryption investors are still skeptical about the "sell news" event in the Bitcoin Spot ETF.

In light of this, Odaily Planet Daily has compiled the relevant questions in the current market and attempted to find corresponding answers.

The Process of Transforming the Risk Assessment of Ethereum Spot ETF Approval

First, let's briefly review the process of the expected approval of Ethereum spot ETF:

The reason is that ETFStore President Nate Geraci tweeted a potential possibility - due to the deadline, the U.S. Securities and Exchange Commission (SEC) must decide this week whether to approve the Spot Ethereum ETF.

However, the complete listing process requires submitting two forms: one for the approval of exchange rule changes (19b-4s) and registration statements (S-1s), both of which are necessary for the launch of an ETF. Geraci pointed out that if the SEC wants to delay the process, theoretically, the SEC could approve the 19b-4s and then process the S-1s slowly, especially considering the SEC's silence in the current related matters, which is quite different from the active involvement in previous Bitcoin ETFs.

Later, Bloomberg analyst Eric Balchunas reposted it and raised the probability of approving spot Ethereum ETF from 25% to 75%. He said, "I heard some rumors this afternoon that the SEC may make a 180-degree turn on this issue (based on some political reasons), so everyone is preparing now." He also reiterated that the probability is capped at 75% until more evidence is seen, such as application updates.

"Subsequently, his colleague James Seyffart added, 'Eric Balchunas increased the probability of the spot Ethereum ETF being approved to 75%. But this is for the May 23 deadline for 19b-4 (VanEck's deadline). We still need approval for the S-1. It may take several weeks to months before seeing the approval of the S-1 and the actual launch of the Ethereum ETF.'"

Furthermore, Fox reporter Eleanor Terrett said that according to sources, the development of Spot Ethereum ETF is "evolving in real time." In the current context, this means that the previous general belief of disapproval may change.

Meanwhile, according to CoinDesk, the SEC has requested exchanges to expedite the update of the 19B-4 document regarding the spot Ethereum ETF. The above process description is from the article "ETH Rises by 20% Overnight: Will SEC Approve Ethereum Spot ETF in a Surprise Move?" and you can read the detailed content in this article.

From the above content, the author found some doubts that need to be confirmed.

1. Why does the SEC have a different attitude towards the approval of Ethereum Spot ETF this time compared to the previous approval of Bitcoin Spot ETF?
2. On May 23rd, is it still a crucial node for Ethereum Spot ETF? Previously, the main reason why the Ethereum spot ETF was not approved was whether Ethereum was defined as a "security". However, the current development trend seems to indicate that the SEC has found a solution to this issue. How exactly is this reflected? SEC's change in attitude is believed by Bloomberg analyst Eric Balchunas to be due to some political reasons. What specific aspects do these political reasons refer to?
3. When is the approximate time for the approval of Ethereum Spot ETF?

According to the answers to the above 5 questions, this reveals the reasons for the conversion of Ethereum spot ETF's reputation and predicts whether it will be approved and when it will be approved.

5 Major Questions about Ethereum Spot ETF

Before starting the Q&A session, it is necessary to introduce two key documents, the S-1 form and the 19 B-4 form, to discuss whether the current Ethereum Spot ETF can be approved.

S-1 Form

S-1 form is a registration statement that ETF issuers must submit to the SEC. S-1 is just one form of registration statement, primarily to ensure that ETFs are registered under the Securities Act, especially for newly issued ETFs.

The registration statement on Form S-1 typically includes the fund's investment objectives, strategies, and risks; information about the fund manager; background of the portfolio manager; detailed information on fees and expenses; composition of the portfolio.

The total review time for Form S-1: The entire process usually takes 60 to 120 days.

19 B-4 Form

If an ETF is planning to be listed on an exchange, the issuer needs to submit a Form 19b-4 to the SEC through the exchange. This form, submitted by the exchange, includes proposed changes to listing rules and explanations, with the aim of obtaining approval from the SEC for the ETF to be traded on that exchange.

19B-4 The form mainly involves the complete text of the rules; the purpose and reasons for the changes; assessment of the impact on the market and investors; opportunity for public comments.

SEC can extend the deadline for Form 19B-4 up to 3 times, with the total duration ranging from 90 days to half a year.

Based on the information provided, it can be seen that the S-1 registration statement is submitted by the ETF issuer to the SEC, while the Form 19B-4 is submitted by the exchange. Therefore, it can be inferred that Form 19B-4 is more like an admission document allowing the ETF to be listed on the exchange, while the S-1 registration statement is an introduction and explanation of the ETF.

In comparison to the approval of Ethereum Spot ETF and Bitcoin Spot ETF, why does the SEC show a differentiated attitude?

First of all, in terms of approval difficulty, Bitcoin Spot ETF is the first Cryptocurrency Spot ETF. The SEC is not clear on the issues related to the process and approval, so it can be seen that before the approval of the Bitcoin Spot ETF, the SEC has held multiple meetings to ensure the process of such ETFs. As for the Ethereum Spot ETF, the SEC has more experience in approving related documents, so it appears to be less proactive in negotiating with the issuer.

Secondly, there is a historical issue regarding whether PoS tokens are defined as securities in both Bitcoin Spot ETF and Ethereum Spot ETF, which is also a major reason hindering the approval of the Ethereum Spot ETF.

Finally, the most significant feature of Ethereum compared to Bitcoin is that the Ethereum Foundation still has a significant influence on Ethereum, which can easily lead to regulatory risks such as manipulating the market.

May 23rd, still a key node for Ethereum Spot ETF?

According to the final approval time of the 19 B-4 form of the Ethereum spot ETF shown in the figure below, VanEck is the first issuer to submit the 19 B-4 form to the SEC. After three delays, May 23rd is its final decision node.

From the previous approval node of Bitcoin Spot ETF, January 10th is the final approval time for BlackRock 19B-4 document. SEC also approved 10 other Bitcoin Spot ETFs on January 10th. Therefore, if we take Bitcoin Spot ETF as an example, May 23rd is indeed a key node for the approval of Ethereum Spot ETF.

When the SEC approves related ETFs, it will not select individual ETFs to pass, but is likely to approve them simultaneously. This was mentioned before in the introduction of Bitcoin Spot ETF.

But it is worth noting that May 23rd is the final approval time for Form 19 B-4. As mentioned earlier, there is also an S-1 registration statement that needs to be approved. Therefore, market participants believe that the SEC may approve the 19 B-4 form first and then delay the approval time in the S-1 registration statement.

So what does the approval of Form 19B-4 mean? According to relevant information, Form 19B-4 only represents that the issuer's ETF can be listed on the relevant exchange, but it cannot officially start trading. The core S-1 registration statement must be passed for the ETF to be officially launched. Both are crucial for the ETF to go live.

Previously, the main reason for the Ethereum spot ETF not being approved is whether Ethereum is defined as a "security". However, based on the current development trend, it seems that the SEC has found a solution to this issue. How exactly is it reflected?

Whether Ethereum is defined as a "security" has been extensively discussed in many previous articles. Ultimately, it comes down to Ethereum's transition from PoW to PoS, where users stake tokens to maintain the network and earn rewards, which violates the Securities Law.

But can the approval of Form 19B-4 prove that the SEC does not consider Ethereum as a "security"? Actually, it cannot. As mentioned earlier, Form 19B-4 is about the listing of ETFs submitted to the SEC by exchanges and has no direct relation to the operation of Ethereum spot ETFs. The relevant document is the S-1 registration statement.

However, according to the S-A document submitted by the issuer of the relevant ETF, the previously mentioned S-1 document explicitly stated that the ETF includes discussions on ETH staking. In other words, the previously mentioned Ethereum spot ETF also includes the profits from Ethereum staking as part of the ETF's related income.

But since February this year, VanEck has submitted an amended version of the S-1A document to the SEC, which is the first amendment among the many issuers' S-1 registration statements that does not include the stake clause. And there have been no news reports of VanEck submitting additional S-1 related documents since then.

In the past few days, both Fidelity and Grayscale have removed the stake section from their S-1 registration statements and resubmitted the documents to the SEC.

It is not difficult to find that in the above-mentioned events, SEC may have found a distinguishing method for whether Ethereum is a "security": if ETH in ETF is not staked, then Ethereum is not considered a security; on the contrary, Ethereum used for staking will be defined as a "security".

This is also the root cause of most issuers resubmitting S-1 documents without stake, and it is also a necessary condition for the SEC to accept Ethereum spot ETF.

Bloomberg analyst Eric Balchunas pointed out that the change in attitude of the SEC is due to some political reasons. What does it specifically represent?

The change in SEC's attitude is based on some political factors. This statement is not groundless. According to relevant news reports, one of the factors is that the SAB 121 rule that has been troubling the encryption industry may be overturned.

The core content of SAB 121 is to require companies that custody cryptocurrencies to record the cryptocurrencies held by their clients as liabilities on the balance sheet. However, the cryptocurrency industry generally believes that this regulation is too strict and effectively hinders custodians or companies from holding crypto assets on behalf of their clients, which is not conducive to the further development of the industry. Therefore, they have been trying to overturn SAB 121 through lobbying and other means for a long time.

In other words, assuming that Section 121 of the SAB is overturned, the shackles restricting the development of the encryption industry in the United States will be broken. The key node at the moment is the final resolution of this clause by President Biden on May 28th.

Another political factor is whether the FIT 21 (also known as HR 4763) bill can be approved, which is a new bill aimed at clarifying the regulatory framework for cryptocurrency. The current progress is that all members of the House of Representatives are scheduled to vote on FIT 21 this week (expected to start voting later on Wednesday or earlier on Thursday local time, possibly at the same time as ETH ETF).

Two legislative bills will change the overall development of cryptocurrencies in the United States, which may determine the SEC's approval progress for the Ethereum Spot ETF.

Most of the analysis above comes from the article "Has the Policy Direction Changed? Besides ETF, These Two Events Reveal a New Attitude towards Encryption Regulation". Readers are encouraged to read the article for detailed information.

When is the approximate time for the approval of Ethereum Spot ETF?

If the SEC follows the approval process of the previous Bitcoin spot ETF, May 23 is the earliest time node for the approval of Ethereum spot ETF. At the same time, judging from the 19B-4 and S-1A documents that the issuers are continuously submitting revisions, there is a higher possibility of approval on May 23.

However, it is not excluded that according to Bloomberg analysts, the SEC is very likely to approve Form 19B-4 first and then extend the approval of the S-1 registration statement due to the related impact of political factors; Ratification is expected to take 1-3 months after the relevant political bills (SAB 121 and FIT 21) have a clear outcome.

A possible prediction with low probability is that the SEC will postpone the decision on the Ethereum Spot ETF until after the November US election, at which time the decision will be made based on the new leadership's attitude towards cryptocurrencies.

However, the author believes that starting from the Ethereum spot ETF itself, the core issue of whether Ethereum is a "security" has been balanced by the SEC and the issuer. Therefore, it is highly likely to be approved on May 23rd.

Odaily Planet Daily reminds everyone that there are still significant uncertainties regarding the approval of Ethereum Spot ETF, and market fluctuations may be more pronounced. If the Ethereum Spot ETF is approved, it is still unknown whether Grayscale will dump it like the previous Bitcoin Spot ETF. It is essential to invest with caution and pay attention to risks.